10QSB 1 v03860_10qsb.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from ______________to _______________. Commission File Number 1-16187 THE BLUEBOOK INTERNATIONAL HOLDING COMPANY (Exact name of Registrant as specified in its charter) DELAWARE 98-0215787 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 21098 BAKE PARKWAY, SUITE 100, LAKE FOREST, CALIFORNIA 92630-2163 (Address, including zip code, of principal executive offices) (949) 470-9534 (Registrant's telephone number, including area code) Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of shares of the Registrant's Common Stock outstanding as of June 4, 2004 was 34,050,115 shares. DOCUMENTS INCORPORATED BY REFERENCE Transitional Small Business Disclosure Format (Check one): Yes [_] No [X] ================================================================================ THE BLUEBOOK INTERNATIONAL HOLDING COMPANY QUARTERLY REPORT ON FORM 10-QSB INDEX Page PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements.........................................2 Condensed Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003............................2 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 (Unaudited).......3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (Unaudited).......4 Notes to Condensed Consolidated Financial Statements (Unaudited)..................................................5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................8 ITEM 3. Controls and Procedures.....................................14 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings...........................................15 ITEM 2. Changes in Securities.......................................15 ITEM 6. Exhibits and Reports on Form 8-K............................15 Signatures....................................................................16 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2004 2003 (unaudited) ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 27,915 $ 44,831 Accounts receivable, net of allowance for doubtful accounts of $4,600 as of March 31, 2004 and December 31, 2003 27,036 26,798 Prepaid expenses and other 11,500 10,000 ------------ ------------ TOTAL CURRENT ASSETS 66,451 81,629 ------------ ------------ PROPERTY AND EQUIPMENT, net of accumulated depreciation of $158,778 and $148,546 in 2004 and 2003, respectively 87,831 98,064 ------------ ------------ OTHER ASSETS Program development costs, net of accumulated amortization of $480,655 and $423,759, in 2004 and 2003, respectively 3,852,180 3,777,200 Intangible assets, net of accumulated amortization of $22,188 and $19,836, in 2004 and 2003, respectively 22,534 24,885 Other assets 5,017 5,017 ------------ ------------ TOTAL OTHER ASSETS 3,879,731 3,807,102 ------------ ------------ TOTAL ASSETS $ 4,034,013 $ 3,986,795 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES Accounts payable and accrued expenses $ 1,200,017 $ 1,063,013 Due to stockholders and related party 628,138 484,688 Deferred revenue 93,949 241,084 Note payable due to related party 245,000 205,000 ------------ ------------ TOTAL CURRENT LIABILITIES 2,167,104 1,993,785 ------------ ------------ OTHER LIABILITIES Series C convertible preferred stock, $0.001 par value, 5,316,704 shares issued and outstanding, subject to mandatory redemption 4,544,680 4,544,680 ------------ ------------ TOTAL OTHER LIABILITIES 4,544,680 4,544,680 ------------ ------------ COMMITMENTS & CONTINGENCIES -- -- STOCKHOLDERS' DEFICIENCY Series B Convertible Preferred Stock, $.0001 par value; 5,000,000 shares authorized, 2,050 shares issued and outstanding -- -- Common Stock, $.0001 par value; 50,000,000 shares authorized; 28,733,411 shares issued and outstanding 2,873 2,873 Additional paid in capital 596,737 596,737 Accumulated deficit (3,277,381) (3,151,280) ------------ ------------ (2,677,771) (2,551,670) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 4,034,013 $ 3,986,795 ============ ============
See accompanying Notes to Condensed Consolidated Financial Statements 2 THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 2003 (unaudited) (unaudited) ------------ ------------ SALES, net $ 292,030 $ 116,638 ------------ ------------ OPERATING EXPENSES Selling, general and administrative expenses 341,855 594,376 Depreciation and amortization expenses 69,480 61,765 ------------ ------------ Total Operating Expenses 411,335 656,141 ------------ ------------ OTHER EXPENSE Interest expense (6,796) (2,852) ------------ ------------ Total Other Expense (6,796) (2,852) ------------ ------------ NET LOSS $ (126,101) $ (542,355) ============ ============ Weighted average number of shares of common stock outstanding, basic and diluted 28,733,411 28,733,411 ============ ============ Loss per share, basic and diluted $ (0.00) $ (0.02) ============ ============ See accompanying Notes to Condensed Consolidated Financial Statements 3 THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31,
2004 2003 (unaudited) (unaudited) ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (126,101) $ (542,355) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 69,480 61,765 Changes in operating assets and liabilities: (Increase) Decrease in Accounts receivable (238) 8,879 (Increase) in Prepaid expenses and other (1,500) (31,049) Increase (Decrease) in Accounts payable and accrued expenses 137,004 (357,165) Increase (Decrease) in Due to stockholders and related party 143,450 (28,634) Increase (Decrease) in Deferred revenue (147,135) 33,534 ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 74,960 (855,025) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment -- (52,895) Program development costs (131,876) (182,434) Purchase of intangible assets -- (1,500) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (131,876) (236,829) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Loans from stockholder 40,000 -- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 40,000 -- ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (16,916) (1,091,854) CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 44,831 1,528,773 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 27,915 $ 436,919 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 6,796 $ 2,852 =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements 4 THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2004 1. BASIS OF PRESENTATION The accompanying interim condensed financial statements are unaudited, but in the opinion of management of The Bluebook International Holding Company (Bluebook or the Company), contains all adjustments, which includes normal recurring adjustments necessary to present fairly the financial position at March 31, 2004, the results of operations for the three months ended March 31, 2004 and 2003, and cash flows for the three months ended March 31, 2004 and 2003. The balance sheet as of December 31, 2003 is derived from the Company's audited financial statements. Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission on May 19, 2004. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company shortened the estimated life of its B.E.S.T. 7 software in the year ended December 31, 2003 because of the earlier introduction of its New software in 2004. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2004. 2. BUSINESS ACTIVITY The Company was incorporated in Delaware on December 17, 1997. Since the Company's exchange reorganization and merger, effective as of October 1, 2001, the principal business of the Company has been developing and selling THE BLUEBOOK and B.E.S.T. software solutions. THE BLUEBOOK is a book in the form of both a desk and pocket size book containing the information of the average unit costs attendant to the cleaning, reconstruction and repair industries. B.E.S.T. is a software format of THE BLUEBOOK which allows subscribers the option to retrieve THE BLUEBOOK data and calculate the cost to clean, reconstruct or repair, then file claims electronically. The Company has recently completed its development of the InsureBase and Insured to Value Solutions. These systems are designed to assist the insurance carrier in calculating premiums for homeowners insurance and identifying and verifying premiums with existing policyholders for residential properties located in the United States and Canada. The Company recently began its marketing of these solutions and has recently sold its first contract of InsureBase. The company is also working with many other prospects. Although the development of the Company's B.E.S.T.Net solution is substantially complete, the Company is currently working on the completion of B.E.S.T.Central and the tie-in or interface between B.E.S.T.Net and B.E.S.T.Central as well as the integration of B.E.S.T.7. into B.E.S.T.Central. 5 LOSS PER COMMON SHARE 3. Basic loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated assuming the issuance of common shares, if dilutive, resulting from the exercise of stock options and warrants. As the Company has no outstanding options or warrants, basic and diluted loss per share are the same for the three months ended March 31, 2004 and 2003. 4. RELATED PARTY TRANSACTIONS The amount due to stockholders and related parties was $628,138 as of March 31, 2004 and $484,688 as of December 31, 2003. The amount due to stockholders as of March 31, 2004 consists of accrued salaries and consulting fees payable to our president and chief executive officer, Mark Josipovich, our chief operating officer, Dan Josipovich, and relatives of the president and chief operating officer of the Company. The note payable due to related party, in the amount of $245,000 at March 31, 2004 and $205,000 at December 31, 2003, is secured, bears an interest rate of 8% and is due on June 15, 2004. During the three months ended March 31, 2004, the Company incurred consulting fees of $37,500 that were accrued to relatives of the president and chief operating officer of the Company. 5. CONTINGENCIES Dependency on key management The future success or failure of the Company is dependent primarily upon the efforts of Mark A. Josipovich and Daniel T. Josipovich, two of the Company's principal founders. The Company has insurance covering such officers' liability and term life insurance. The Company has entered into two-year employment contracts with the key officers of the Company. Concentration of credit risk The Company's financial instruments that are exposed to concentrations of credit risk consist principally of cash and receivables. The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances have exceeded FDIC insured levels at various times during the year. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk in cash. The Company's trade receivables are due from a broad customer base and each individual receivable amount constitutes a relatively small value. Operating leases The Company leases office space, certain office equipment and a vehicle under non-cancelable operating leases expiring through January 2006. Total rental expense for the leases for the three months ended March 31, 2004 and 2003 was $22,513 and $22,885, respectively. The following is a schedule by years of future minimum rental payments required under the operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of March 31, 2004. PERIOD ENDING MARCH 31, AMOUNT ----------------------- ----------- 2005 $36,992 2006 2,086 ----------- Total $39,078 =========== Employment agreements In September 2001, Bluebook International entered into employment agreements with Mark A. Josipovich and Daniel T. Josipovich for a term of two years with an automatic extension of successive one-year periods. 6 Effective October 1, 2001 the Company assumed these agreements and expanded the services to include each person's executive position. Under these agreements, Mark A. Josipovich is employed as the Chief Executive Officer, President, and Secretary, and Daniel T. Josipovich is employed as the Chief Operating Officer, each with an annual salary of $180,000, plus health insurance benefits, term life insurance benefits and the right to participate in any future employee stock option, retirement, profit sharing or other benefit plans offered in the future to similarly situated employees. The employment agreements also contain indemnification and confidentiality provisions. The agreements also provide that we should reimburse the employee for all reasonable and necessary expenses incurred on our behalf. In the event of termination without cause by Mark A. Josipovich or Daniel T. Josipovich or termination with cause by us, Mark A. Josipovich and Daniel T. Josipovich are entitled to all accrued and unpaid compensation as of the date of termination. In the event of termination with cause by Mark A. Josipovich or Daniel T. Josipovich or termination without cause by us, Mark A. Josipovich or Daniel T. Josipovich are entitled to all accrued and unpaid compensation as of the date of termination and total amount of annual salary from the date of termination until the end of the term of the employment agreements. Litigation As a general matter, we are subject to various legal proceedings, claims, and litigation that arise in the normal course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our financial position, results of operations, or cash flows. On February 3, 2003, Bluebook was named as a defendant in Morris Diamond, et al. v. The Bluebook International Holding Company, New York Supreme Court, Monroe County Case No. 1204/03. In the Diamond case, plaintiffs allege that the Company wrongfully withheld the issuance and delivery of plaintiffs' Company shares, thereby damaging plaintiffs in the loss of the value of their Company stock. The Company has no record of any stock ownership for one of the plaintiffs and, pending discovery, disputes that there is any basis for any claim against the Company. The Company does not dispute the stock ownership of the other plaintiffs. After the other plaintiffs presented the Company with lost stock certificates and representation letters, the other plaintiffs' shares were reissued to them. The Company is in settlement discussions with all plaintiffs but will defend this suit fully if it proceeds. The Company believes that it is not subject to any liability arising from this litigation. Effective as of May 3, 2004, Bluebook and Cotelligent, Inc. agreed to a mutual settlement of the entire arbitration between them pursuant to a Settlement Agreement. The arbitration arose when on April 24, 2004, Cotelligent filed a Demand for Arbitration, Case No. 73 131 00185 03 ARC, asserting a claim against The Bluebook International Inc. for breach of contract arising out the consulting services agreement between Cotelligent and Bluebook. On May 29, 2003, The Bluebook International Inc. filed cross-claims against Cotelligent. Under the terms of the Settlement Agreement, Cotelligent converted all of its shares of Bluebook Series C Convertible Redeemable Preferred Stock into shares of Bluebook Common Stock on a one-for-one basis. In addition, Cotelligent agreed to deliver source code developed by Cotelligent for Bluebook pursuant to the consulting services agreement. 6. GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has a net loss from operations of $126,101, a positive cash flow from operations of $74,960 and has a net working capital deficiency of $2,100,653 and net stockholders' deficiency of $2,677,771 as of March 31, 2004. These factors raise substantial doubt about the Company's ability to continue as a going concern. Without realization of additional capital or 7 debt, it would be unlikely for the Company to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. The Company has incurred negative cash flow from operations in recent years. As of March 31, 2004 the Company had cash of $27,915 and an accumulated deficit of $3,277,381. The Company's operating cash flows for the three months ended March 31, 2004 were funded primarily through operations, loans from majority stockholders and cash existing at December 31, 2003. The Company believes it has sufficient cash to meet its immediate working capital requirements while additional operations and development funds are sought from loans from officers or principal stockholders of the company, third party financing and further reducing overhead relating to software solutions now finished in development. The Company has recently taken steps to improve liquidity, including obtaining additional funding, reduction of its workforce and deferment of a portion of its Chief Executive Officer's and Chief Operating Officer's salaries. If it is not successful in raising additional capital, it will further reduce operating expenses through headcount reductions in restructurings and modify its business model and strategy to accommodate licensing of its technology and databases. Further, the Company would continue sales of THE BLUEBOOK and B.E.S.T. software solutions and recently released InsureBase and Insured to Value software solutions. The Company does not expect any significant impact on its sales of THE BLUEBOOK, B.E.S.T.7 and InsureBase software solutions from such restructurings; however, they may adversely affect the development of any new software solutions. 7. SUBSEQUENT EVENTS o Pursuant to the Settlement Agreement with Cotelligent, on May 6, 2004, the Company issued 5,316,704 non registered shares of Common Stock and cancelled 5,316,704 shares of Series C Convertible Redeemable Preferred Stock. As a result of this conversion, stockholder deficiency will be reduced by $4,544,680. o An agreement was signed to issue 35,503 shares of common stock to settle a consulting fee debt of $4,200. o On March 31, 2004 the Company entered into a loan agreement in the amount of $120,000. The loan bears interest of 10% per annum, paid in advance and due on April 1, 2005. o Pending settlement of outstanding legal costs of approximately $399,000 in exchange for 1,995,974 shares within 30 days of their request and an additional 399,195 shares upon closing of the agreement. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Quarterly Report on Form 10-QSB (Quarterly Report) contains forward-looking statements. These forward-looking statements include predictions regarding our future: o revenues and profits; o customers; o strategic partners; o research and development expenses; o sales and marketing expenses; o general and administrative expenses; o liquidity and sufficiency of existing cash; o technology, products and software solutions; o the outcome of pending or threatened litigation; and o the effect of recent accounting pronouncements on our financial condition and results of operations. You can identify these and other forward-looking statements by the use of words such as "may," "expects," "anticipates," "believes," "estimates," or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. 8 Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the heading "Risk Factors." All forward-looking statements included in this document are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements. The following information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto included in Item 1 of this Quarterly Report, and with Management's Discussion and Analysis and the Consolidated Financial Statements and notes thereto contained in our Annual Report on Form 10-KSB filed with the SEC on May 19, 2004. RESULTS OF OPERATION THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003 Revenues. Our revenues are derived primarily from sales of our B.E.S.T. software solutions and THE BLUEBOOK. Net revenues for the three months ended March 31, 2004 increased by $175,392 or 150% to $292,030 compared with net revenues of $116,638 for the three months ended March 31, 2003. Included in revenue for the three month period ended March 31, 2004 was $160,012 resulting from change in estimate for the estimated sales life of B.E.S.T.7. Previously, the sales life of B.E.S.T. 7 was amortized over 24 months, and now is fully amortized in anticipation of the release of our new software. We expect revenue to increase in the second quarter as we commence sales on our InsureBase and Insured to Value solutions and continue sales of THE BLUEBOOK and our B.E.S.T. software solution. Operating Expenses. Selling, general and administrative expenses decreased by $252,521 or 42% to $341,855 for the three months ended March 31, 2004 compared to $594,376 for the three months ended March 31, 2003. This decrease is due primarily to reduction of workforce, decrease in legal and accounting fees, and decrease in other professional expenses associated with the development and marketing of new software, preparation of business plan, litigation and our reporting obligations. We expect selling, general and administrative expenses to increase in the near future. Depreciation and Amortization. Depreciation and amortization for the three months ended March 31, 2004 increased by $7,715 or 12% to $69,480 compared to $61,765 for the three months ended March 31, 2003. This increase was primarily due to amortization of B.E.S.T.7 program development costs. Interest Expense. Interest expense for the three months ended March 31, 2004 increased by $3,944 or 138% to $6,796 compared to $2,852 for the three months ended March 31, 2003. This increase was primarily due to interest on Note payable due to related party. Net Loss. For the three months ended March 31, 2004, we had a net loss of $126,101 or less than $0.01 per share, compared with a net loss of $542,355 or $0.02 per share for the three months ended March 31, 2003. The decrease in net loss for the three months ended March 31, 2004 is primarily attributable to increased revenue and decreased selling, general and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES Our consolidated financial statements have been prepared assuming that we will continue as a going concern. We have incurred negative cash flow from operations in recent years. As of March 31, 2004, we had cash of $27,915, net working capital deficiency of $2.1 million and an accumulated deficit of $3.3 million. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our 2004 operations and investment activities have been funded primarily through sales, loan from a related party and cash existing at December 31, 2003. We have no material commitments for capital expenditures as of March 31, 2004. We believe that the majority stockholders and their affiliates will be able to supply funding sufficient for us to operate through fourth quarter 2004. 9 As a result of the delays in releasing B.E.S.T.Net and B.E.S.T.Central, revenues from sales of those products and services have been delayed. We believe that we have available cash, together with cash from operations and cash from financing expected to be available, sufficient to fund our operations through the fourth quarter of 2004, excluding costs associated with outside vendors to complete the development of B.E.S.T.Net and B.E.S.T.Central of approximately $125,000. We are actively seeking to raise additional capital through sales of equity or debt securities and are optimistic that we will be able to obtain such funding. However, if we are not successful in raising sufficient additional working capital, we can reduce operating expenses through reductions in sales and development personnel and other steps to restructure our operations. Although we do not expect to incur significant adverse impact on sales and development of our current products and services from such cost reductions, our development of additional products and services would likely be adversely affected or suspended altogether. Our business plan projects positive cash flow from operations and positive net earnings in fiscal year 2004. If we meet our current development and sales efforts of InsureBASE, B.E.S.T.Net and B.E.S.T.Central, or if we meet our projected sales targets of B.E.S.T. and Insure to Value, we believe we will have sufficient working capital from these sales to fund operations going forward. If these sales are delayed or fall short of our expectations, we will need to raise additional capital to meet this shortfall, reduce the number of employees dedicated to marketing and product development or make other operating cost reductions. We believe we can remain in operations and cut operating costs; however, the B.E.S.T.Net, B.E.S.T.Central and future products and marketing efforts would be adversely affected. Net cash provided from operating activities was $74,960 during the three months ended March 31, 2004 and net cash used for operating activities was $855,025 for the same period in 2003. This increase in net cash from operating activities was primarily due to increase in revenue, decrease in legal and accounting expenses and decrease in salary expenses. Net cash flows used in investing activities was $131,876 for the three months ended March 31, 2004 and $236,829 for the same period in 2003. The decrease in cash used for investing activities was primarily due to completion of software solutions,. the slowing down of the development of new software solutions, and there being no major purchases of property and equipment and increases in accounts payable. Net cash flows provided from financing activities was $40,000 for the three months ended March 31, 2004 and $0 for the same period in 2003. The increase in cash provided from financing activities was primarily due to loan from a related party. We have recently taken steps to improve our liquidity, including obtaining additional funding, reduction of our workforce and deferment of the salaries of our Chief Executive Officer and Chief Operating Officer. If we are not successful in raising additional capital, we will further reduce operating expenses through headcount reductions in restructurings and modify our business model and strategy to accommodate licensing of our technology and databases. Further, we would continue sales of our Bluebook and B.E.S.T. software solutions and our recently released InsureBase and Insured to Value solutions. We do not expect any significant impact on our sales of the Bluebook and B.E.S.T.7 from any such restructurings. However, these restructurings may adversely affect sales of our InsureBase and Insured to Value solutions, as well as development of any new solutions. We intend to seek additional capital in the next six months through additional private placements, loans from stockholders and sales of various products. If we are not successful in raising additional capital, we will reduce operating expenses through headcount reductions in restructuring. Any projections of future cash needs and cash flows are subject to substantial uncertainty. Our primary short-term needs for capital are our product development efforts, our sales, marketing and administrative activities, working capital associated with increased sales of our solutions, and capital expenditures relating to maintaining and developing our operations. Our future liquidity and capital requirements will depend on numerous factors, including the extent to which our present and future solutions gain market acceptance, the extent to which products, solutions or technologies under development are successfully developed, the costs and timing of expansion of sales, marketing and manufacturing activities, the cost, the procurement and enforcement of intellectual property rights important to our business and the results of competition. 10 RELATED PARTY TRANSACTIONS For a discussion of related party transactions involving the company, see note 4 of our financial statements included in this quarterly report. COMMITMENTS AND CONTINGENCIES For a discussion of our commitments and contingencies, see note 5 of our financial statements included in this quarterly report. CRITICAL ACCOUNTING POLICIES Our discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these Consolidated Financial Statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an on-going basis, our estimates and judgments, including those related to the useful life of the assets and deferred revenue. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our Consolidated Financial Statements. The SEC considers an entity's most critical accounting policies to be those policies that are both most important to the portrayal of a company's financial condition and results of operations and those that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation. We believe the following critical accounting policies, among others, require significant judgments and estimates used in the preparation of our Consolidated Financial Statements: o Revenue recognition; and o Computer software to be sold, leased or otherwise marketed. We account for internally developed and purchased software in program development costs in accordance with Statement of Financial Accounting Standard No. 86 (SFAS No. 86), "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." The capitalization of computer software begins upon the establishment of technological feasibility of the product, which we have defined as the completion of beta testing of a working product. Costs of purchased computer software that has no alternative future use is accounted for in the same manner as the costs incurred to internally develop such software. Costs of purchased computer software is capitalized and accounted for in accordance with its use. Capitalized costs include only (1) external direct costs of material and services consumed in developing or obtaining internal-use software, and (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. Research and development costs and other computer software maintenance costs related to software development are expensed as incurred. Software development costs are amortized using the straight-line method over the expected life of the product. We regularly review the carrying value of software and development to determine if there has been an impairment loss that needs to be recognized. Revenue is recognized when earned. Our revenue recognition policies for our existing revenues are in compliance with American Institute of Certified Accountants Statements of Position 97-2 and 98-4, "Software Revenue Recognition." Revenue from sales of The Bluebook and other ancillary products is recorded when the products are shipped. Revenue from the sale of a license agreement is recognized ratably on a straight-line basis over the product's life cycle. Certain contracts specify separate fees for the software and the ongoing fees for maintenance and other support. If sufficient verifiable objective evidence of the fair value of each element of the arrangement exists, the elements of the contract are unbundled and the revenue for each element is recognized as appropriate. Revenue received or receivable in advance of performance of services is deferred and included in deferred revenue. 11 RISK FACTORS WE ANTICIPATE FUTURE LOSSES AND MAY NOT BE ABLE TO ACHIEVE SUSTAINED PROFITABILITY. We have incurred net losses in recent years and, as of March 31, 2004, we had an accumulated deficit of $3.2 million. We anticipate that we will continue to incur additional operating losses in the near term. These losses have resulted principally from sales and marketing and general and administrative expenses. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we cannot achieve or sustain profitability for an interim period, we may not be able to fund our expected cash needs or continue our operations. WE ARE NOT GENERATING POSITIVE CASH FLOW FROM OPERATIONS AND MAY NEED ADDITIONAL CAPITAL AND ANY REQUIRED CAPITAL MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS OR AT ALL. We have incurred negative cash flow from operations on an annual basis in recent years. Our financial plan for 2004 indicates that our available cash, together with cash from operations and cash from financing expected to be available, should be sufficient to fund our operations through the fourth quarter of 2004, excluding any development costs to complete B.E.S.T.Net and B.E.S.T.Central. As a result, we may raise additional capital or pursue alternative strategies including licensing of our technologies. Our financial plan for 2004 indicates that our available cash, together with cash from operations and cash from financing expected to be available, should be sufficient to fund our operations through the fourth quarter of 2004, excluding any development costs to complete B.E.S.T.Net and B.E.S.T.Central. Our financial plan for 2004 expects that we will greatly reduce, if not eliminate, our negative cash flow from operations, primarily through increased revenue and continued control over operating expenses. However, our actual results may differ from this plan, and we may be required to consider alternative strategies. We may need to raise additional capital in the future. If necessary, we expect to raise these additional funds through one or more of the following: (1) sale of various products or marketing rights; (2) licensing of technology; and (3) sale of equity and debt securities. If we cannot raise the additional funds through these options on acceptable terms or with the necessary timing, management could also reduce discretionary spending to decrease our cash burn rate and extend the currently available cash. Additional capital may not be available on acceptable terms, if at all. The public markets may remain unreceptive to equity financings, and we may not be able to obtain additional private equity financing. Furthermore, any additional equity financing would likely be dilutive to stockholders, and additional debt financing, if available, may include restrictive covenants which may limit our currently planned operations and strategies. If adequate funds are not available, we may be required to curtail our operations significantly and reduce discretionary spending to extend the currently available cash resources, or to obtain funds by entering into collaborative agreements or other arrangements on unfavorable terms, all of which would likely have a material adverse effect on our business, financial condition and our ability to continue operations. FACTORS BEYOND OUR CONTROL MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE, AND THIS FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE. We believe that our future operating results will fluctuate on a quarterly basis due to a variety of factors, including: - the introduction of new products by us or by our competitors; - our distribution strategy and our ability to maintain or expand relationships with our existing user base and strategic partners; - market acceptance of our current or new products; and - competition and pricing pressures from competitive products. We have high operating expenses for personnel, new product development and marketing. If any of the factors listed above cause our revenues to decline, our operating results could be substantially harmed. 12 WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE, WHICH MAY AFFECT OUR ABILITY TO RAISE CAPITAL IN THE FUTURE OR MAKE IT DIFFICULT FOR INVESTORS TO SELL THEIR SHARES. The securities markets have experienced significant price and volume fluctuations and the market prices of securities of many public technology companies have in the past been, and can in the future be expected to be, especially volatile. For example, in 2003 our closing stock price ranged from a low of $0.01 to a high of $1.10, and in the first quarter of 2004 our closing stock price ranged from a low of $0.11 to a high of $0.33. Fluctuations in the trading price or liquidity of our common stock may adversely affect our ability to raise capital through future equity financings. Factors that may have a significant impact on the market price and marketability of our common stock include: - announcements of technological innovations or new products by us or by our competitors; - our operating results; - developments in our relationships with strategic partners; - litigation; - economic and other external factors; and - general market conditions. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. If a securities class action suit is filed against us, we would incur substantial legal fees and our management's attention and resources would be diverted from operating our business in order to respond to the litigation. WE DEPEND ON KEY PERSONNEL FOR OUR FUTURE SUCCESS. IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL, WE MAY BE UNABLE TO ACHIEVE OUR GOALS. Our future success is substantially dependent on the efforts of our management team, particularly Mark A. Josipovich, our Chairman and Chief Executive Officer, and Daniel T. Josipovich, our Chief Operating Officer. The loss of the services of members of our management may significantly delay or prevent the achievement of product development and other business objectives. Because of the specialized technical nature of our business, we depend substantially on our ability to attract and retain qualified technical industry knowledgeable personnel. There is intense competition for qualified personnel in the areas of our activities. Although we have employment agreements with Mark A. Josipovich and Daniel T. Josipovich, each is an at-will employee, which means that either party may terminate the employment at any time. If we lose the services of, or fail to recruit additional key technical personnel, the growth of our business could be substantially impaired. We do not maintain life insurance for any of our key personnel. WE HAVE LIMITED INTERNAL RESOURCES TO DEVOTE TO PRODUCT DEVELOPMENT AND COMMERCIALIZATION AND MAY REQUIRE THE USE OF OUTSIDE SERVICE FIRMS TO DEVELOP SOME OF OUR PRODUCTS. IF WE UNABLE TO DEVOTE ADEQUATE RESOURCES TO PRODUCT DEVELOPMENT AND COMMERCIALIZATION OR AFFORD THE SERVICES OF THESE OUTSIDE TECHNOLOGY FIRMS, WE MAY NOT BE ABLE TO FURTHER DEVELOP OR DELIVER OUR PRODUCTS. Our strategy is to develop software solutions addressing underwriting and claims management. We believe that our revenue growth and profitability, if any, will substantially depend upon our ability to: - improve market acceptance of our current products; - complete development of new products; and - successfully introduce and commercialize new products. We have introduced some of our software products only recently and some of our products are still under development. Among our recently introduced products is B.E.S.T.7 and InsureBASE. We currently have under development B.E.S.T.Net and B.E.S.T.Central. Because in the past we have depended on external technology firms to develop some of our products and have limited resources to devote to product development and commercialization, any delay in the development of one product or reallocation of resources to product development efforts that prove unsuccessful may delay or jeopardize the development of our other product candidates. If we fail to develop new products and bring them to market, our ability to generate additional revenue will decrease. 13 In addition, our existing or to be released solutions may not receive further or satisfactory market acceptance, and we may not be able to successfully commercialize them on a timely basis, or at all. If our products do not achieve a significant level of market acceptance, demand for our products will not develop as expected. WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY, WHICH COULD RENDER OUR PRODUCTS OBSOLETE OR SUBSTANTIALLY LIMIT THE VOLUME OF PRODUCTS THAT WE SELL. THIS WOULD LIMIT OUR ABILITY TO COMPETE AND ACHIEVE PROFITABILITY. Our competitors may develop or market technologies or products that are more effective or commercially attractive than our current or future products or that would render our technologies and products obsolete. Further, additional competition could come from new entrants to the underwriting and claims management market. Moreover, we may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully. If we fail to compete successfully, our ability to achieve sustained profitability will be limited. WE MAY BE UNABLE TO SUCCESSFULLY MARKET AND DISTRIBUTE OUR PRODUCTS AND IMPLEMENT OUR DISTRIBUTION STRATEGY. The market for underwriting and claims management solutions is highly fragmented. We market and sell our products primarily through the mail, conventions, authorized resellers and the Internet. We may not successfully develop and maintain our marketing, distribution or sales capabilities. If our marketing and distribution strategy is unsuccessful and our relationships with our resellers are not renewed or engaged, our ability to sell our products will be negatively impacted and our revenues will decrease. WE MAY FACE COSTLY INTELLECTUAL PROPERTY DISPUTES. Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology and either to operate without infringing the proprietary rights of others or to obtain rights to technology owned by third parties. We rely on trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. We may become subject to intellectual property infringement claims and litigation. The defense of intellectual property suits, proceedings, and related legal and administrative proceedings are costly, time-consuming and distracting. We may also need to pursue litigation to protect trade secrets or know-how owned by us, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation will result in substantial expense to us and significant diversion of the efforts of our technical and management personnel. Any adverse determination in litigation could subject us to significant liabilities to third parties. Further, as a result of litigation or other proceedings, we may be required to seek licenses from third parties that may not be available on commercially reasonable terms, if at all. ITEM 3. CONTROLS AND PROCEDURES An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Principal Accounting Officer concluded that those disclosure controls and procedures were adequate to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. There was no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 14 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 3, 2003, Bluebook was named as a defendant in Morris Diamond, et al. v. The Bluebook International Holding Company, New York Supreme Court, Monroe County Case No. 1204/03. In the Diamond case, plaintiffs allege that Bluebook wrongfully withheld the issuance and delivery of plaintiffs' Bluebook Holding shares, thereby damaging plaintiffs in the loss of the value of their Bluebook stock. Bluebook has no record of any stock ownership for one of the plaintiffs. Bluebook does not dispute the stock ownership of the other plaintiffs. After the other plaintiffs presented Bluebook with lost stock certificates and representation letters, the other plaintiffs' shares were reissued to them. We are in active settlement discussions with all plaintiffs but will defend this suit fully if it proceeds. Bluebook believes that it is not subject to any liability arising from this litigation. Effective as of May 3, 2004, Bluebook and Cotelligent, Inc. agreed to a mutual settlement of the entire arbitration between them pursuant to a Settlement Agreement. The arbitration arose when on April 24, 2004, Cotelligent filed a demand for arbitration against Bluebook in Case No. 731310018503 ARC, asserting a claim for breach of contract arising out of a consulting services agreement between Cotelligent and Bluebook. Bluebook filed cross-claims on May 29, 2003. Under the terms of the Settlement Agreement, Cotelligent converted all of its shares of Bluebook Series C Preferred Stock into shares of Bluebook common stock on a one-for-one basis. In addition, Cotelligent agreed to deliver source code developed by Cotelligent for Bluebook pursuant to the consulting services agreement. From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. ITEM 2. CHANGES IN SECURITIES On May 5, 2004, Bluebook and Cotelligent mutually entered into an agreement to dismiss Arbitration Case No. 731810018503 ARC and convert all of Cotelligent's shares of Series C Convertible Preferred Stock into 5,316,704 non registered shares of common stock. As a result of this conversion, stock holders deficiencies will be reduced by $4,544,680. All preferences and privileges associated with the Series C Convertible Preferred Stock were removed and all shares of Series C Convertible Preferred Stock will be retired. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Number Description 31 Certification of Chief Executive Officer and Principal Accounting Officer of Periodic Report Pursuant to Rule 13(a)-15(e) or Rule 15d-15(e). 32 Certification of Chief Executive Officer and Principal Accounting Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350. (b) Reports on Form 8-K. None. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-QSB to be signed on its behalf by the undersigned hereunto duly authorized. THE BLUEBOOK INTERNATIONAL HOLDING COMPANY Date: June 4, 2004 By: /s/ Mark A. Josipovich ------------------------------------------------ Mark A. Josipovich, Chief Executive Officer and Principal Accounting Officer 16